RBI Rings In New Rules For Acquisition Financing By Banks: 70% Cap, Profitability And More
The RBI, in its draft guidelines, said a bank's exposure towards acquisition finance should not exceed 10% of its Tier-1 equity.
The Reserve Bank of India on Friday introduced draft norms for acquisition financing by banks, which state that lenders may finance only up to 70% of the total acquisition value.
The remaining 30% should be accounted from the acquiring company’s equity infusion, as per the draft rules.
The RBI has also proposed that a bank's exposure towards acquisition finance should not exceed 10% of its Tier-1 equity.
Furthermore, the shares of the target company — the firm that is to be acquired — would be the primary security for acquisition finance, according to the rules put forth by the RBI.
The banking sector regulator also proposed that acquisition finance can only be provided to a listed company, which is profit making for at least three years.
The draft norms further state that the financing could only be provided to the acquiring company or its special purpose vehicle; and intermediaries such as NBFCs and AIFs are not eligible to receive the same.
Also, the acquiring company and target companies should not be related parties, the RBI added.
These draft guidelines are open for public comments till Nov. 21. The final guidelines will take into account the comments received.
"These directions shall come into force from April 1, 2026, or an earlier date when adopted by a bank in entirety," the RBI said. Any outstanding loan up to this date will be permitted to continue until their respective maturity. However, fresh loans or existing loans renewed from this date must comply with the fresh norms, it added.
